Works-contract turnover suppression and speculative input tax credit cannot reduce penalty exposure under Kerala VAT.
Under the Kerala VAT regime, penalty can be sustained where a return omits the full works-contract turnover and discloses only amounts treated as separate sales, because goods supplied by the awarder and incorporated in the contract form part of the taxable turnover on accretion. For penalty purposes, the tax sought to be evaded must be computed on the suppressed turnover as found, and probable input tax credit cannot be deducted. The availability of credit in assessment does not reduce the concealment already established for penalty computation.
Issues: (i) Whether penalty proceedings under the Kerala Value Added Tax Act, 2003 could be sustained where the turnover disclosed in the return omitted amounts deducted by the awarder for goods supplied for incorporation in a works contract and treated them as separate sales; (ii) Whether, in computing the tax sought to be evaded for the purpose of penalty, probable input tax credit could be deducted.
Issue (i): Whether penalty proceedings under the Kerala Value Added Tax Act, 2003 could be sustained where the turnover disclosed in the return omitted amounts deducted by the awarder for goods supplied for incorporation in a works contract and treated them as separate sales.
Analysis: The contract receipts ought to have been disclosed in full, with tax computed on the works-contract turnover after permissible deductions, because goods supplied by the awarder and incorporated in the works contract form part of the taxable transaction on accretion. The return disclosed only the value attributed to a sale simpliciter, which resulted in suppression of the contract turnover. The reliance placed on authorities dealing with best judgment or with regimes of regular assessment was held inapplicable, since under the VAT scheme the return operates as a self-assessment and the omission went to the root of the taxable turnover.
Conclusion: Penalty proceedings were justified and the Tribunal was wrong in setting aside the penalty.
Issue (ii): Whether, in computing the tax sought to be evaded for the purpose of penalty, probable input tax credit could be deducted.
Analysis: Input tax credit, even if otherwise available, could be claimed only in assessment proceedings and not by way of reducing the suppression detected for the purpose of penalty. The quantum of tax sought to be evaded had to be worked out on the suppression as found, without assuming set-off of a future or probable credit. The availability of credit in assessment did not dilute the concealment already established for penalty purposes.
Conclusion: Probable input tax credit could not be deducted while computing the tax sought to be evaded for penalty.
Final Conclusion: The questions of law were answered against the assessee and in favour of the Revenue, the Tribunal's order was set aside, and the penalty was sustained with a modification in quantum.
Ratio Decidendi: In VAT penalty proceedings, suppressed works-contract turnover must be assessed on the basis of the full taxable contract receipts found suppressed, and speculative input tax credit cannot be deducted in determining the tax sought to be evaded.